VIETNAM TOBACCO TAX REFORM April 2017 Tax Policy Dept., Ministry of Finance of Vietnam

OUTLINE OF PRESENTATION Background & Tobacco tax strategy Tobacco tax recent changes and related issues Future reform

1. BACKGROUND Population: > 90 millions Smoking prevalence (2015): 45.3% Government Tobacco Control Strategy by 2020: Reduce prevalence from 47.4% in 2011 to 39% by 2020 Establish TC Fund to carry out TC activities Govt Tax Reform Strategy by 2020, including tobacco To work out a roadmap for adjusting tax rates applicable to cigarettes to regulate consumption and implement international commitments; To study to apply ad valorem and specific rates

2. Tobacco tax and price measure All tax rates are ad-valorem - Tariff/Import tax: 135% - VAT: 10% Excise: 70% Minimum price on cheap brands

Tobacco Control Fund (TC Fund) TC Fund established from May 2013 Compulsory contribution to TC Fund = Compulsory rate (%) x excise taxable price. From May 2013 – May 2016: Compulsory rate is1%. From May 2016: Increased to 1,5%; From May 2019: Increased to 2%.

2.1. Amended Excise Tax in 2014 Before 2016 (From Apr 01, 2009): 65% From 2016, Amended Excise Tax law provided for tobacco tax increase roadmap: Goods/ rate 2014 2015 2016 2017 2018 2019 cigarettes 65% 70% 75%

2.2. Amended Excise Tax Law recently (cont) Change in taxable price since 01/01/2016: For imported goods: swifting from CIF price to selling price of importers At import stage: temporary taxing at import price but still subject to their selling price at later stage When importer sell imported goods: taxing the margin (selling price – import price)

2.3. Arguments on recent changes To increase tax rate: To reduce consumption To reduce health cost and death To realize the Govt TC and Tax Reform Strategy To taxable price on imported goods - Ensure equal treatment between domestic and imported cigarettes

3. Issues Industry strong intervention against proposed tax rate increase and roadmap. Industry rationales + illicit trade + reduction in revenue + heavy tax burden & contribution to TC Fund established from 2013 + job loss, affect poor people State owned tobacco enterprises

4. Future excise tax reform Context: Continue to complete Tax Reform Strategy period 2011-2020 Need to review implementation of recent tax changes Still need to increase tobacco tax Govt working out roadmap to equitize Stated owned tobacco enterprises

4. Future excise tax reform Steps: - MOF preparing to propose to Government to revise Excise tax law - Continue to complete Tax Reform Strategy period 2011- 2020 - Work out Excise Tax Reform Strategy period 2021- 2030 incorporate tobacco tax increase:

4.Tobacco tax reform preparation & support For ad-hoc /urgent proposal: For normal track legislation agenda Impacts Assessment Report (Revenue, Illicit, Job, ...) New proposal Submission Paper Advocacy to all related levels

4.Tobacco tax reform preparation & support Preparation: usually 3 years in advance or instant support for ad-hoc /urgent proposal Technical support: WB, WHO BI (Union, TFK...), HealthBridge, SEATCA ...

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